The workings of a stock market

If you want to buy and sell shares, you need to do this via the stock market.

So what exactly is a stock market? And what functions does it provide?

Let’s take a closer look…

What is a stock market?

A stock market is an organised market place where you can buy and sell shares.

The vast majority of stock markets have two main functions…

The first function is as a primary market, where companies list for the first time, raising capital. The second function is as a secondary market, where investors buy and sell existing shares.

In South Africa, the only stock market is the Johannesburg Stock Exchange (JSE). It also now incorporates the Bond Exchange and the Futures Exchange.

The primary function of a stock market

The primary function is to facilitate companies to issue new shares to raise capital by selling equity in their businesses.

When this happens for the first time, it’s called an initial public offering (IPO).

The secondary function of a stock market

The secondary function of a stock market is perhaps the most well-known. This is to provide a regulated and consistent market for the trading of issued shares.

As an investor, this is the function you’ll be most interested in. Every time you buy and sell shares, it goes through the stock market.

To transact through the stock market, you must use a stock broker. A stock broker is a member of the stock market. They must adhere to a number of rules and regulations when it comes to buying and selling shares.

So there you have it. The workings of a stock market.

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